Not again! Delhi’s import plan sends pulse racing
With the government keen to take no chances, moves are afoot to let PSUs continue importing large quantities, especially yellow peas, this year as well.
NEW DELHI: WORRIED about stagnant domestic production, the government is expecting India to import up to 3 million tonnes pulses till March 2008. That would mean a 50% jump over last year and the highest ever quantity imported by India.
With the government keen to take no chances, moves are afoot to let PSUs continue importing large quantities, especially yellow peas, this year as well. That is great news for both Canadian farmers and desi traders, who benefit directly from this move. The reasons are simple: Tenders floated by Indian PSUs invariably lead to a spurt in the global prices, which boosts profits of overseas growers. Since the government pays 15% of the loss on every PSU import deal, local traders get to pick up the imported cargo at below world prices and then sell it at a profit to consumers. Unlike imported wheat, subsidised imported pulses are not sold in ration shops to the poor.
According to latest official estimates, production of pulses in India is not expected to cross 14.5 million tonnes in 2007-08, which is the same as last year. To ensure continued availability, PSUs such as STC, PEC, Nafed and MMTC may be asked to continue importing pulses in the coming months. The current policy of the government picking up 15% of the loss on every deal is also expected to continue. The Cabinet Committee on Prices (CCP) is expected to take a decision on it shortly.
The government is banking heavily on imported yellow peas to take some pressure off prices. Out of the 3 million tonnes pulses likely to be imported, 60% would be yellow peas, mainly from Canada. According to the ministry of consumer affairs, yellow peas is a reasonably good substitute for other types of pulses and its price is also comparatively much lower.
“As a strategy, therefore, it could be decided that the PSUs such as NAFED, STC, MMTC and PEC could be requested to continue to import pulses (including yellow peas) during the next year. It is, however, be kept in mind that the import decisions of India have an important bearing on international prices,” it has stated in its proposal to the CCP. In the last one year, prices of all pulses have jumped by close to 17%. Private importers say there is little possibility of cooling in coming year because international prices are high.
“Except for white and green peas, and tuvar now, there is still no parity between Indian and international prices. In other words, prices outside are still higher than those in India. We don’t expect them to cool in 2007-08, though availability will improve with extensive imports,” said Kailash Bhartiya, president of the Indian Pulses Importers Association.
But while there is legitimate concern within the government about rising prices, the whole import mechanism is unfortunately geared towards making dals even more expensive for ordinary consumers, as the ministry of consumer affairs itself points out. Under the current system, PSUs have to issue two tenders-one global tender for buying the pulses, and one within India for selling the imported cargo. When the import tender is floated,
overseas traders are immediately alerted about demand from India and raise prices accordingly.
“Last week, Canadian peas prices jumped $15/t within three hours of two PSUs floating their tenders. They ended up paying a record price $360/tonne. When another PSU told the overseas market it was ready to buy 1,00,000 tonnes soon, obviously prices spurted. Though transparency is important, the whole system is so
indiscreet that the landed price is much higher than necessary,” said a Mumbai-based broker.
“We should examine other models. For instance, China National Cereals, Oils and Foodstuffs Corp (Cofco), the largest oils and food importer and exporter in China and a leading food manufacturer, is so discreet that you hardly get to know when it enters and exits the world market,” said an observer here.
Not only are PSUs barred from striking better deals with individual foreign companies, they don’t have the opportunity to deploy market information strategically like private players.
“If you know that the crop is virtually finished in Canada and only a handful of cargoes are available, then ideally you would wait for the new crop, which is certain to be at least $70/tonne cheaper. But PSUs rarely have the luxury of time. They have to simply calculate parity after factoring in the 15% loss (to be paid by the Centre) and go ahead with the deal,” he added. As a result of these moves, Indian consumers rarely get the best deal from the global market even though the government is spending substantial money.
For private importers, however, the entry of PSUs has been a great advantage. Till last year, each importer had to calculate the parity between imported pulses and domestic prices and his own margin before signing a deal. As Indian prices were much below world prices, the risk was too high and deals by private importers were drying up.
But PSU imports changed all that. It is PSUs who now bear the risk and loss of importing expensive pulses and selling it below cost. PSUs float a tender for their imported cargoes and all private traders have to do is bid a price depending on local prices. The 15% loss that traders would have borne otherwise is thus shifted on to PSUs. As there is no government control on retail prices, traders are then free to charge consumers at will for pulses.
“If a PSU is in a hurry to sell off its imported cargo, then traders obviously take advantage of it by quoting low prices. But the benefit is not passed on to consumers. So despite the government’s best intentions, there is little visible benefit to consumers, especially the poorer sections,” said an industry watcher.
With the government keen to take no chances, moves are afoot to let PSUs continue importing large quantities, especially yellow peas, this year as well. That is great news for both Canadian farmers and desi traders, who benefit directly from this move. The reasons are simple: Tenders floated by Indian PSUs invariably lead to a spurt in the global prices, which boosts profits of overseas growers. Since the government pays 15% of the loss on every PSU import deal, local traders get to pick up the imported cargo at below world prices and then sell it at a profit to consumers. Unlike imported wheat, subsidised imported pulses are not sold in ration shops to the poor.
According to latest official estimates, production of pulses in India is not expected to cross 14.5 million tonnes in 2007-08, which is the same as last year. To ensure continued availability, PSUs such as STC, PEC, Nafed and MMTC may be asked to continue importing pulses in the coming months. The current policy of the government picking up 15% of the loss on every deal is also expected to continue. The Cabinet Committee on Prices (CCP) is expected to take a decision on it shortly.
The government is banking heavily on imported yellow peas to take some pressure off prices. Out of the 3 million tonnes pulses likely to be imported, 60% would be yellow peas, mainly from Canada. According to the ministry of consumer affairs, yellow peas is a reasonably good substitute for other types of pulses and its price is also comparatively much lower.
“As a strategy, therefore, it could be decided that the PSUs such as NAFED, STC, MMTC and PEC could be requested to continue to import pulses (including yellow peas) during the next year. It is, however, be kept in mind that the import decisions of India have an important bearing on international prices,” it has stated in its proposal to the CCP. In the last one year, prices of all pulses have jumped by close to 17%. Private importers say there is little possibility of cooling in coming year because international prices are high.
“Except for white and green peas, and tuvar now, there is still no parity between Indian and international prices. In other words, prices outside are still higher than those in India. We don’t expect them to cool in 2007-08, though availability will improve with extensive imports,” said Kailash Bhartiya, president of the Indian Pulses Importers Association.
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But while there is legitimate concern within the government about rising prices, the whole import mechanism is unfortunately geared towards making dals even more expensive for ordinary consumers, as the ministry of consumer affairs itself points out. Under the current system, PSUs have to issue two tenders-one global tender for buying the pulses, and one within India for selling the imported cargo. When the import tender is floated,
overseas traders are immediately alerted about demand from India and raise prices accordingly.
“Last week, Canadian peas prices jumped $15/t within three hours of two PSUs floating their tenders. They ended up paying a record price $360/tonne. When another PSU told the overseas market it was ready to buy 1,00,000 tonnes soon, obviously prices spurted. Though transparency is important, the whole system is so
indiscreet that the landed price is much higher than necessary,” said a Mumbai-based broker.
“We should examine other models. For instance, China National Cereals, Oils and Foodstuffs Corp (Cofco), the largest oils and food importer and exporter in China and a leading food manufacturer, is so discreet that you hardly get to know when it enters and exits the world market,” said an observer here.
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Not only are PSUs barred from striking better deals with individual foreign companies, they don’t have the opportunity to deploy market information strategically like private players.
“If you know that the crop is virtually finished in Canada and only a handful of cargoes are available, then ideally you would wait for the new crop, which is certain to be at least $70/tonne cheaper. But PSUs rarely have the luxury of time. They have to simply calculate parity after factoring in the 15% loss (to be paid by the Centre) and go ahead with the deal,” he added. As a result of these moves, Indian consumers rarely get the best deal from the global market even though the government is spending substantial money.
ADVERTISEMENT
For private importers, however, the entry of PSUs has been a great advantage. Till last year, each importer had to calculate the parity between imported pulses and domestic prices and his own margin before signing a deal. As Indian prices were much below world prices, the risk was too high and deals by private importers were drying up.
But PSU imports changed all that. It is PSUs who now bear the risk and loss of importing expensive pulses and selling it below cost. PSUs float a tender for their imported cargoes and all private traders have to do is bid a price depending on local prices. The 15% loss that traders would have borne otherwise is thus shifted on to PSUs. As there is no government control on retail prices, traders are then free to charge consumers at will for pulses.
“If a PSU is in a hurry to sell off its imported cargo, then traders obviously take advantage of it by quoting low prices. But the benefit is not passed on to consumers. So despite the government’s best intentions, there is little visible benefit to consumers, especially the poorer sections,” said an industry watcher.
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